Flour prices rise, bakery profits fall

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Renita Jablonski: Look for the price of rice to go up again. Thailand, the world's biggest exporter of rice, announced the cost per ton surged to $1,000 today. That's almost triple the price per ton at the start of the year. You may have heard us mention yesterday retailers like Sam's Club and Costco are starting to see signs of panic buying. Then there's wheat. Wheat has also hit record highs this year. Bread, scones and other baked goods are getting noticeably more expensive. Bakeries large and small are rethinking the way they do business. Ashley Milne-Tyte has our story from New York.

Ashley Milne-Tyte: Noel Labat-Comess is president of Tom Cat Bakery in Queens. He specializes in fancy breads, which he sells wholesale: baguettes, ciabatta and chewy seven-grain loaves. When we meet, he's making out a check to his flour mill.

Noel Labat-Comess: So, it's for almost $22,000, and typically they were for $7,200, $7,300. So, we're looking at triple.

That's for just two days' worth of flour. Comess recently attended a seminar on commodity price-hedging to figure out how to control his costs. But he says futures and options aren't his strength; bread-making is. (Hissing sounds from the bakery) Rows of doughy baguettes rise in one of the bakery's steam-filled proofing rooms.

Labat-Comess: ...You can touch it here. You can feel it, it's, you know, it's got that little sort of baby's bottom moistness, as we say, not a technical term, but... So, it has to stay that way.

The bread may be rising, but profits are falling. Even though Comess increased prices last fall, Tom Cat's fourth quarter profits were down 85 percent over last year's. In March, he raised prices for the second time in six months. His customers, food businesses themselves, have gone along with his moves. But the average retail customer is a different matter. Josephine Messina is the manager at Mazzola Bakery in Brooklyn. The 80-year-old store has a loyal neighborhood following. Messina just hiked bread prices by 25 percent.

Many of these customers live on pensions, she says. Still, she ruled out an alternative to increases.

Messina: There was flour that was less expensive, and we had the option of purchasing that. And we didn't, 'cause we didn't want to diminish our quality of our bread. We wanted to keep the same customers. We have people coming from all over.

At Tom Cat Bakery, Noel Labat-Comess expects to feel squeezed for a while.

Labat-Comess: I don't know when we will see ourselves back at the same margins that we've had historically.

Farmers expect to plant more crops this year than last. He hopes that will help bring the recent sky-high prices back down to earth.